Question

Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $53 to buy from farmers and $18 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $25 or processed further for $18 to make the end product industrial fiber that is sold for $39. The beet juice can be sold as is for $32 or processed further for $28 to make the end product refined sugar that is sold for $79.
Which of the intermediate products should be processed further?

Garrison 16e Rechecks 2017-09-13, 2017-11-11

Multiple Choice

beet fiber should be processed into industrial fiber; beet juice should NOT be processed into refined sugar

beet fiber should be processed into industrial fiber; beet juice should be processed into refined sugar

beet fiber should NOT be processed into industrial fiber; beet juice should be processed into refined sugar

beet fiber should NOT be processed into industrial fiber; beet juice should NOT be processed into refined sugar

Answer 1

Answer:

Beet fiber should NOT be processed into industrial fiber; beet juice should be processed into refined sugar

Explanation:

A company should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.

Also note that all cost incurred up to the point of crush are irrelevant to the decision to process further

Product        Additional Rev.    Further process cost.     Net income(loss)

Fiber              14 i.e (39 -25)                  18                                     (4)

Juice              47 .i,e  (79- 32) i.e           28                                    19

The beet fiber should not be process further  while the beet juice should be be processed further into refined sugar . Processing Beet Juice further will generate additional income of 19 per unit